Customers’ Code of Conduct/Ethics

Response #1: We are seeing a high volume of Customer codes as well. We have backed away from revising or negotiating another party's code, as they are never published with any mal-intent. While our policies and procedures may not align perfectly with the expectations of the other party's code, our standards, ethics and practices are excellent and we feel we can manage through any differences that might arise.

However one approach that might help is to acknowledge the other party's code, but not necessarily agree to it.¹

 

Response #2: We try to insert the word "principles" so it would be "supplier agrees to comply with the [principles announced in] Customer's Code of Conduct." Sometimes we say that we agree to comply with our own Code, which is comparable so it would read "supplier agrees to comply with [its own Code of Conduct Policy, which is comparable with] Customer's Code of Conduct Policy."

 

Requests that we train and pushdown customers' Codes along the supply chain are simply struck out. We generally get very little pushback. I think most customers realize that suppliers, which have possibly thousands of customers, cannot possibly agree to be bound to each customer's code of conduct policies or to train staff and/or advise their suppliers about each customer's individual policy.²

 

Response #3: The Supplier Code of Conduct is a bit of Kabuki theater designed to make do-gooders feel good about do-gooding. The idea is that Evil Corporations should be forced to be ethical, and they should enforce ethics down their supply chains too. These pieces of paper will solve everything.

 

The genesis of the exercise is the conflict minerals disclosure required by Dodd-Frank, which was designed to keep the bad guys in the Congo from profiting from 3TG extraction. This in itself is a noble cause indeed – but if you total the costs on global trade, it would have been cheaper just to take the money and buy all of the warlords condos in Paris.

 

Call me cynical, but the idea that a supplier would fire all of their child labor so that they could sign one of these in order to get the business is ludicrous. Miscreants aren't going to be scared straight by a supplier code; they're going to lie about it and sign anyway.

 

All of these codes say basically the same thing – don't do bad things, like bribe people (already a crime in most places), don't hire kids, pay fair wages, etc. They are most often expressed as a company's "expectations" for their suppliers, so really aren't contracts that would be enforced with damages. On the other hand, many carry audit and inspection rights, so if there is a problem your buyer can come take a look.

 

For domestic U.S. businesses all of this is a colossal waste of time and money. The practice in my industry is to take a quick look to see if there's something in the Code that does not make sense, sign it, throw them in the drawer and not worry about it – unless of course your company happens to violate a pile of laws already, in which case the code is not your real problem.³

 

Response #4: Basically, for those of us who push back against contractual commitments to codes, we ask that the requestor recognize the equivalency of our codes or compliance programs. This approach mainly works, but sometimes it gets down to a negotiated contractual statement with minor adjustments or wording.⁴

 

Response #5: Our approach is that we do not agree to other parties Code of Conduct. We generally send a letter back with a link to our Code of Conduct and explain that we will manage our organization in accordance with our Code of Conduct. We will sometimes allow them to audit based on their Code of Conduct but such results will not constitute a "breach." We sometimes allow the other party to terminate if their audit reveals that we are not aligned with their Code of Conduct and we choose not to take corrective actions (we've never actually had a situation like this).

 

If the customer won't agree, we have a middle approach where we enter into a side agreement that effectively says both parties have reviewed each others Code of Conduct and agree that they are consistent and each will manage to its own Code of Conduct. In the end it is not all that different than approach one but is sometimes a "feel" good approach.

 

Finally, during negotiations I ask counsel on the other side to advise me how they have advised other vendors to set-up a program to manage various Code of Conducts because it would take resources and obviously increase our costs. The majority of time that ends the conversation and we get to point 1 above - we will make sure we have programs to implement our own Code of Conduct. As both the General Counsel and Chief Compliance Officer I cannot manage a compliance program where I have to manage to 50 different Code of Conducts. This explanation is generally understood. I find that most of the time the request to sign the other parties Code of Conduct is really geared toward companies that do not have a Code of Conduct in place and/or is often a "drawer" exercise.⁵

 

Response #6: Setting aside the very valid point of how can any of us reasonably manage our company simultaneously to two or more non-parallel Codes of Conduct, I'd also suggest that when I've taken the time to actually read the other party's proffered Code that quite often it's sprinkled with the sorts of things that go beyond Code of Conduct from a 'compliance requirements' perspective and in fact incorporate more aspirational goals that are well above what are needed for legal compliance. To be clear, I'm happy if MY company, for its own reasons, wants to take on aspirational goals, but whether those aspirational goals make sense for my client to incorporate into MY company based on somebody else's aspirations is a very different question.

 

In the end, barring a serious business level discussion (as opposed to contract drafting exercises) where the two companies have come to agreement that my company needs to aspire above the law's requirements to conform with the other party's aspirations (some of which can have huge implications from a cost, or even impossibility, perspective to be frank), my take is that in a commercial contracting arrangement I'm only willing to contract for what the law requires of me and that slipping in another party's Code of Conduct should not be a substitute for well-considered business thinking by my client's management. (Which is why I still prefer the more simple representation that we both agree to obey the law, and frankly wonder why one even needs to say that since we both have to obey the law anyway, and a breach of contract claim can easily flow even without that representation if in fact a breach of law by the first party causes a contract failure or damage to the other party, and beyond that what business is it of yours if my activities really don't impact you? The time and place to decide if the character of your business partner is one you like isn't during contracting, it's during due diligence, a process that is sadly lacking in many cases.)⁶